Will There Be CFPB Penalties for ‘Checkbook Justice’ and ‘Responsible Conduct’?

The first sig­nif­i­cant penal­ty from the Con­sumer Finan­cial Pro­tec­tion Bureau in con­nec­tion with vehi­cle financ­ing — a devel­op­ment asso­ci­at­ed with approx­i­mate­ly $6.5 mil­lion in rev­enue for two com­pa­nies.

Com­pli­ance experts from Reynolds and Reynolds and Deal­er­track Tech­nolo­gies explain how the first enforce­ment action against the vehi­cle financ­ing indus­try by the Con­sumer Finan­cial Pro­tec­tion Bureau might give more detail about the agency’s reg­u­la­to­ry agen­da.

Ter­ry O’Loughlin, the direc­tor of com­pli­ance at Reynolds, described a term in the legal com­mu­ni­ty called, “check­book jus­tice.” When an indi­vid­ual or com­pa­ny is caught doing a prac­tice that might vio­late laws, a state or fed­er­al agency might require the par­ty to pay a per­cent­age of what could be the poten­tial lia­bil­i­ty.

“That’s not the case with the bureau,” says O’Loughlin. “The bureau tends to make the par­ty that’s vio­lat­ing the law pay hand­some­ly for their alleged wrong­do­ing. It sounds like an expen­sive res­o­lu­tion.”

The Sit­u­a­tion

The CFPB ordered U.S. Bank and one of its non­bank part­ner com­pa­nies, Deal­ers’ Finan­cial Ser­vices, to end what it called decep­tive mar­ket­ing and lend­ing prac­tices tar­get­ing active-duty mil­i­tary.

The bureau said the two com­pa­nies must return about $6.5 mil­lion to ser­vice mem­bers for fail­ing to prop­er­ly dis­close all the fees charged to par­tic­i­pants in the com­pa­nies’ Mil­i­tary Install­ment Loans and Edu­ca­tion­al Ser­vices (MILES) auto loans pro­gram, and for mis­rep­re­sent­ing the true cost and cov­er­age of add-on prod­ucts financed along with the auto loans.

The Bureau’s Point of View

“The bureau has a spe­cial mis­sion to pro­tect ser­vice mem­bers,” CPFB direc­tor Richard Cor­dray said. “The MILES pro­gram failed to prop­er­ly dis­close costs asso­ci­at­ed with repay­ing auto loans through the mil­i­tary allot­ments sys­tem and the expen­sive auto add-on prod­ucts sold to active-duty mil­i­tary. We will con­tin­ue our work to ensure that ser­vice mem­bers are treat­ed fair­ly.”

CFPB Mon­i­tor Reac­tion

Christo­pher J. Willis, writ­ing for the CFPB Mon­i­tor, says: There are sev­er­al notable things about the CFPB bul­letin that will be of spe­cial inter­est to the auto sales finance indus­try.

Accord­ing to Willis, the CFPB Bul­letin describes the sorts of “respon­si­ble con­duct” that might lead it to be more lenient in the con­text of an enforce­ment inves­ti­ga­tion.

Says Willis: The Bureau needs to encour­age self-reme­di­a­tion, and to reward it when it occurs, and the Bul­letin is a help­ful pub­lic state­ment in that direc­tion.  The actu­al expe­ri­ence of finan­cial ser­vices com­pa­nies in such sit­u­a­tions will also be crit­i­cal to the suc­cess of the Bureau’s efforts to encour­age “respon­si­ble con­duct” – the Bureau can either encour­age that con­duct by show­ing indus­try par­tic­i­pants the real ben­e­fits of self-reme­di­a­tion, or can under­mine its goals by using self-reme­di­a­tion as a spring­board for pub­lic enforce­ment actions.

Read the full arti­cle on the case against U.S. Bank and its non-bank part­ner Deal­ers’ Finan­cial  Ser­vices.



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